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Comparing EU and Asian Integration ProcessesThe EU a role model for Asia?

Dr. Axel Berkofsky


Senior Policy Analyst
European Policy Centre (EPC)

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Contents
1. Introduction
2. EU Integration-Avoiding Wars
3. EU-Style Integration versus Pragmatic Integration in Asia
4. Time to Integrate (Economically)
5. Asia: Integration without Institutionalisation
6. An Asian Identity through Economic Integration?
7. China-The Engine of Regional Integration?
8. Regional Integration and Japans Economic Crisis
9. Regional Integration-Japans Goals and Motivations
10. Japan-Able and Willing to Integrate?
11. Regional Integration and the Role of Chinese-Japanese Relations
12. Regional Integration and the Role of Free Trade Agreements (FTAs)
13. Obstacles to Asian Integration
14. Conclusion

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Summary
Enlargement, economic and political integration are distinctive features of the
international political and economic scene at the beginning of the 21st century.
Whereas the European Union (EU) is fully integrated, Asia on the other hand still
lags behind with regard to economic and political integration. EU-style political
integration processes will not take place in East and Southeast Asia any time
soon and Asian governments will continue to favour bilateral over multilateral
trade free trade agreements for the foreseeable future. Compared to Europe, the
Asian institutionalisation process is usually referred to as nascent and the
principle of non-interference in internal affairs (formulated in the charter of the
Association of Southeast Asian Nations (ASEAN) will remain an obstacle to
further economic and political integration in Asia.
However, given the different cultural backgrounds and history, it would be a
mistake to compare the success of the EU integration process with the less
impressive state of Asian economic and political integration. EU-style integration
does not necessarily set the standards by which Asian integration can be
measured.
The comparative analysis of EU and Asian integration below will seek to explain
why Asia will not experience EU-style integration and in the processes assess
whether China, the regions economic powerhouse with impressive economic
growth rates, is likely to become the engine of economic and political integration
in Asia.
The paper seeks to explain why Asian nations will, at least for the foreseeable
future, remain reluctant to integrate further economically, despite outside
pressure to do so and the wider aspirations to develop an Asian identity. The
paper will show to what extent the legacy of colonialism and the lack of domestic
structures in East and Southeast Asia, among other factors, will remain obstacles
to EU-style economic and political integration in the foreseeable future.
On the other hand Japans economic recovery needs to become sustainable and
stable over the coming years to enable the country to once again become a leader
of political and economic integration in the region.
Japan will need to concentrate on the recovery of its own economy before being
able to dedicate sufficient time and energy to being at the forefront of Asian
economic and political integration. However, it remains to be seen whether Japan
is willing and able to play a leadership role in Asian economic integration in light
of its close alliance with the US, existing Japanese protectionism and the
countrys reluctance to change its patterns of trade and economic co-operation.
This paper will not analyse integration processes in South Asia but focus on the
analysis of economic and political integration in East and Southeast Asia. Hence,
throughout the paper the term Asia is used as equivalent for Northeast, East
and Southeast Asia.
However, the author does acknowledge the recent progress made with regard to
regional integration in South Asia within the framework of the South Asian
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Association for Regional Co-operation (SAARC). India has taken a leading role
in South Asian economic and political integration in recent years and was an
early supporter of the recently established South Asian Free Trade Area (SAFTA)
promoting free trade between of goods between SAARC Member States
(Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka).

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1. Introduction
The EU the model for codified and institutionalised integration became a
Union of 25 Member States in May 2004. A number of other European countries
are set to join the EU in the coming years and alongside this ongoing widening,
the Union has set itself the ambitious goal of becoming the most competitive
economy in the world by 2010. However, regional economic integration and free
trade agreements can be found far beyond the EU. The North Atlantic Free Trade
Agreement (NAFTA) for example, although currently only a group of three
countries (the US, Canada and Mexico) wants to establish a free trade zone (Free
Trade of the Americas) with 31 countries in Central and South America by the
end of 2005. Asias economic and political integration record is significantly less
impressive, despite recent initiatives to establish bilateral and multilateral free
trade agreements across the region.
Following a brief overview of the rationale and stages of EU integration, this
paper will, among other points, discuss the current state and prospects for further
Asian (mainly economic) integration, assess the pros and cons of concepts of
Asian-style practical integration, discuss the role of free trade agreements in
Asia and elaborate on the obstacles to Asian integration. Special attention will be
given to China and Japan and their roles in economic and political integration in
Asia.
The question of whether China is likely to become the engine of political and
economic integration will be analysed along, with a discussion on whether Japan
will be willing and able to take on a leadership role in Asian integration in spite
of its close alliance with the US, its economic crisis, economic protectionism and
existing nationalism.
The paper concludes that stable Japan-Chinese relations and reconciliation
between the two countries will be key to further economic and political
integration in Asia. Recent Chinese-Japanese tensions and trade frictions as well
as the inability to overcome the legacy of World War, however, will continue to
remain an obstacle to further economic and political integration in Asia.
The devastating tsunami that hit Asia in December 2004, causing death and
destruction in a number of Southeast Asian countries triggered an unprecedented
regional solidarity and support for the countries hit by the wave. In particular,
Japans soft power (economic assistance, development, reconstruction efforts)
and the countrys financial contribution will prove to be vital in the coming
months (and probably years). Japan has recently offered to pay out $500 million
in aid, making it by far the biggest donor in Asia. Apart from its significant
financial contributions, Japan has announced that it will take the lead in
developing a regional tsunami early warning system. Japan, home of the world's
most advanced tsunami alert system, is offering its technology and know-how to
countries hit by the wave to help them develop similar systems. China, too,
joined the aid efforts and has announced its willingness to provide $80 million to
the countries hit by the tsunami.

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Although it remains to be seen whether a natural disaster can help promote
sustainable regional integration in Asia, it can be hoped that Japan and China will
maintain and increase their level of support and enter into a healthy competition,
to the benefit of the region and the countries hit by the tsunami.
2. EU Integration-Avoiding Wars
Political integration and reconciliation in Europe began with European economic
integration after centuries of war and conflict. Europe was devastated after World
War II and its political leaders realised that the continent needed to integrate to
avoid further wars and inner-European rivalry. Franco-German reconciliation was
on top of Europes political agenda. Peaceful relations between the two countries
that fought three wars over a period of 50 years were the basis for a meaningful
European integration. The US, through the Marshall Plan and other means,
strongly supported European reconciliation and later integration contributed to
the recovery of Europes economies.
Co-ordination of intra-European economic activity in key sectors such as coal
and steel was the basis of Jean Monnets vision for a united and peaceful Europe
and led to the establishment of the European Coal and Steel Community (ECSC).
The Treaty of Rome triggered the EUs process of integration and the free
movement of goods was extended far beyond steel and coal to manufactured
goods. Later on, the Common Agricultural Policy (CAP) was established to
manage the ECs market for agricultural products. The EC turned to monetary
affairs in the 1970s which lead to the establishment of the European Monetary
System (EMS) in 1979. The EMS supported the stability of European currencies
and was the forerunner of the Euro, established in 1999. The literature suggests
that one of the main factors that fostered European integration was the decision
of EU policymakers to respond to the challenge posed by growing economic
interdependence by creating a European common market. No Member State
wanted to be left behind and thus undertook individual and, increasingly,
common initiatives to achieve the goal of European economic and political
integration.
Today, the EU is fully integrated both politically and economically and also
has a common market, a common currency and (at least on paper) a common
foreign and security policy (CFSP). However, integration did not happen
overnight but a gradual process over sixty years (see the annex of this paper).
3. EU-Style Integration Versus Pragmatic Integration in Asia
The merits of regional integration (within the boundaries of a geographically
limited area), however, are not universally acknowledged. Regional integration
and regionalism, some scholars argue, contradict the increasing globalisation of
economic and political relations. They suggest that the EU be understood as an
exception in a world that is increasingly characterised by the erosion of national
borders and economic interaction within a geographically defined region. In the
1990s, Asian scholars introduced the concept of soft integration (or soft
regionalism). This integrationist approach was centred around the Japanese
economy and differs fundamentally from the EUs hard integration based on
politically set arrangements. Asian nations have been reluctant to embrace EU6

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style integration strategies and tend to pursue strategies of open regionalism
and open integration, or coming together when it fits their interests. Open
integration Asian-style embraces concepts of loose and pragmatic integration,
excluding legally-binding decisions that constrain action in key policy areas. In
this context, the literature also speaks of open regionalism in Asia, indicating
that initiatives in economic integration are not necessarily limited to one region.
The concept of open regionalism also advocates integration processes not
supported by formal institutions.
Today, Asian integration can still be best described as market-driven integration.
Whereas the benefits of political integration in Asia are not yet fully
acknowledged, economic integration is perceived as beneficial when it yields
economic benefits for all parties involved.
4. Asia -Time to Integrate (Economically)
Further economic integration in Asia institutionalised or not will become
necessary if Asia wants to increase its share in world trade. From 1980-2000 Asia
has more than doubled its share in world trade and (geographically) far-reaching
free trade agreements will help increase this share. Today, East Asia (Japan,
China and South Korea) surpasses the EU and NAFTA in terms of population
and is ahead of both in terms of gross national income measured at purchasingpower parity. Further Asian integration would not only strengthen economic cooperation, but will actually become necessary in order to tackle problems such as
poverty, environmental pollution, water shortage and deforestation. It will also
become necessary to secure a sustainable supply of energy in Asia. Chinas
growing demand for crude oil, in particular, needs to be mentioned in this context.
Recently, China has surpassed Japan as the worlds second biggest importer of
crude oil (second only to the US) and the Organization for Economic
Cooperation and Development (OECD) predicts that East Asia will become the
largest net importer of crude oil by 2020.
An economically integrated Asia will enable the regions governments to jointly
negotiate the conditions of Foreign Direct Investment (FDI) and limit the degree
of freedom for short-term capital flows in Asia. Massive short-term capital flows
were believed to have been one of the causes of the 1997/1998 Asian financial
crises. Following the crisis, Asian governments made increased efforts to foster
integration in the field of regional monetary policies, even if the establishment of
an Asian Monetary Fund (AMF), designed to provide Asian governments with
emergency funds in times of economic crisis, has yet to be realised. Back then,
many Asian governments, including Japan, acknowledged the need to become
less dependent on the US dollar. This has lead to the Miyazawa and Chang Mai
initiatives advocating currency swaps amongst central and regional banks in Asia.
In 2002 Thailands Prime Minister, Thaksin Shinawatra, launched the idea of an
Asian bond market which eventually led to the establishment of the Asian Bond
Fund in June 2003. The objective of the fund is to encourage Asian governments
to issue bonds to be reinvested within Asia. Thereby, the use of the US dollar will
decline as the bonds will be traded in local Asian currencies.

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5. Asia: Integration without Institutionalisation
Unlike in Asia, EU integration was accompanied by an institutionalisation
process. Indeed, institutionalisation and institution-building is not considered
beneficial in the Asian context. There are fears that institutions will oblige
governments to give up sovereignty in key policy areas. From an Asian
perspective, regional integration does not have to be supported by institutions
imposing legally-binding rules and norms on their members. Institutionalised
regional economic integration will not become a priority for Asian nations any
time soon and Asian governments will continue to advocate and pursue exportled growth regimes and economic strategies above all in their plans for attracting
FDI. The lack of EU-style political and economic institutionalised integration is
not necessarily a weakness but rather a strength for Asian countries as it keeps
the integration processes flexible and preserves its legally non-binding status.
The reluctance of Asian countries to promote efforts to institutionalise their
relations can also be explained by a shared feeling of distrust that regional
bureaucratic structures will become independent of their state sponsor. While
regional organisations and forums in Asia (APEC, ASEAN, ARF and others) are
already playing a role fostering trans-national networks, they have yet to become
policy-making institutions.
How can the relative weakness of formal institutions in Asia be explained? A
comparison with the EU suggests two answers: different international norms and
domestic state structures in Asia and Europe. Whereas the introduction of the
norm of multilateralism was a key strategy of US foreign policy in Europe after
World War II, US foreign policy in Asia, on the other hand, has advocated
bilateralism and bilateral alliances. In Asia, it was not in the interest of the US to
support or create regional institutions that would constrain American foreign
policies. Instead, the US established a system of bilateral alliances with Asian
nations. Today, US support for multilateralism in Asia is lukewarm at best as it
threatens to reduce American economic and political influence.
Western literature argues that domestic state structures in Asia do not favour and
support the establishment of formal institutions operating with legally-binding
decisions, rules and laws. The Association of Southeast Asian Nations (ASEAN),
established in 1967 as an initiative to co-ordinate economic and foreign policies
amongst Southeast Asian nations, constitutes a regional institution without the
instruments and capabilities to implement legally-binding policies. Unlike the EU,
ASEAN acts according to the principle of non-interference in internal affairs of
its Member States. This principle, formulated in the ASEAN Charter, is indeed
ASEANs key principle, significantly limiting the associations influence on
Member States policymaking. The EU and its highly rationalised bureaucracies,
on the other hand, are well equipped to deal with public law and formal
institutions.
Western authors also typically underline that the lack of democratic structures
and truly Western-style democratic institutions in many Asian nations are an
obstacle to integration in Asia. The existence of the so-called one-party
democracies in Asia, the argument, is an obstacle to any meaningful political
integration. Whereas Western policymakers argue that democratic structures are
the very precondition for meaningful (codified and legally-binding) economic
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and political integration, Asian governments, on the other hand, advocated the socalled network- style of integration, making use of interpersonal and informal
relations to pursue what they referred to as Asian-style integration. However, the
Asian economic crisis 1997/1998 very clearly showed the limits of the Asian
network-style integration strategies and reminded Asian policymakers (except
ex-Prime Minister Mohamed Mahathir of Malaysia who chose to blame financial
speculation by US investment banks for the financial crisis) of the need to create
transparent and accountable domestic and regional financial and banking systems.
Corporate governance in Asia, despite the progress made after the Asian
economic crisis 1997/1998, remains underdeveloped, and the banking and
financial system (Japan included) still lack transparency and accountability.
6. An Asian Identity through Economic Integration?
Due to its cultural heterogeneity and geographical dimensions, there is no clearly
defined concept of Asia comparable to the concept of Europe and the EU-25. The
lack of clearly defined borders as well as common culture and religion, the
literature argues, stand in the way of developing anything resembling an Asian
identity and thus weakens any existing incentives to further integrate.
Whereas the concept of Asia is ambiguous and lacks a clear empirical reference,
Asian identity (or what comes closest to the concept of identity) results mainly
from the (non-legally binding) interaction of real and imagined factors.
Advocates of Asian integration (without outside interference) and an Asian
identity in the recent past include Mr Mahathir and Singapores elderly statesman
Lee Kuan Yew. They used a concept of Asian identity to advocate Asian-style
human rights and democracy as well as Asian family and community values and
capitalism (or crony capitalism, as critical Western policymakers and scholars
termed it back then). Asia, Yew and Mahathir maintained, already had an identity
even if it did not translate into codified and legally-binding EU-style integration.
At the beginning of the 1990s hopes were raised that economic and political
integration would help Asia to develop its own identity by overcoming the legacy
of colonialism for good. In the very early 1990s, the then Malaysian Prime
Minister Mohamed Mahathir proposed the idea of an East Asian Economic
Caucus (EAEC) promoting an Asian identity through a forum without the
participation of the West (above all without the US, as Mahathir emphasized in
various speeches, angering policymakers in Washington). Mahathir wanted to
create an economic community in which Asian nations could pursue strategies of
economic integration without interference from outside, a caucus without
Caucasians as Mahathir himself referred to. The US, the most influential
economic power (although geographically clearly neither part of East nor
Southeast Asia), however, was strongly opposed to Mr Mahathirs suggestions
and eventually convinced Japan (initially a staunch supporter of the initiative) to
abandon its support for the proposal that had been supported by anti-Western and
nationalistic rhetoric. The EAEC, designed to be the Asian answer to the USled Asia-Pacific Economic Cooperation forum (APEC) did not receive enough
support from other Asian nations, and an Asian forum without Washingtons
participation remained a taboo issue until the Asian crisis of 1997/1998.

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Asias second chance to foster regional integration (and an Asian identity), the
literature argues, came after the Asian financial crisis 1997/1998. The economic
crisis, Naoko Munakata writes, cleared away the earlier taboo of an Asia-only
framework. Asian policymakers realised that intra-Asian economic and financial
interdependence, not supported by transparent and accountable domestic financial
and banking systems, was responsible for the economic and financial crisis. As
an initiative to create structures to avoid future large-scale economic and
financial crisis in Asia, the first ASEAN+3 (ASEAN Member States plus Japan,
China and South Korea) summit was held at the end of 1997. Despite US
criticism and initially fierce opposition (out of the fear that ASEAN+3 was
directed against the US), ASEAN+3 has turned out to be a successful formula
for bringing Southeast and Northeast Asian nations together. In particular,
Chinas growing economic role and influence in Asia have turned Southeast
Asian governments into outspoken advocates of further economic integration
with China, Japan and South Korea. ASEAN+3, Asian policymakers argue, is
becoming an Asian alternative to the US-centred hub and spokes regional order,
supported by bilateral alliances with, above all, Japan and South Korea.
ASEAN+3, the US on the other hand fears, is part of Chinas so-called new
multipolar strategy (with the EU being another pole) seeking to diminish US
influence in Asia (and Europe for that matter).
Currently, the global trends of economic integration (in Europe as well as South
America and North America) put pressure on Asian nations to integrate
economically and politically even if Asian governments usually insist that
integration will take place at a speed that is comfortable for all and based on
the consensus of all parties involved. Integration the ASEAN way, however,
has until recently encouraged Asian governments to remain in a wait-and-seemode with regard to integration, and undertake initiatives to implement free
trade agreements with each other, excluding China.
7. China-The Engine of Regional Integration?
While Japan was the engine of economic growth and integration in Asia in the
1980s, China, supported by impressive and seemingly sustainable economic
growth rates, is set to become the economic powerhouse for integration in Asia in
the coming years. In recent years, China has emerged as the foremost proponent
of creating the so-called East Asian Economic Community by 2020.
Beijing has also proposed free trade agreements with ASEAN by 2010. Chinas
economic performance and ability to attract FDI worth more than $53 billion in
the first 10 months of 2004 is impressive. According to World Bank development
indicators, Chinas gross national income (GNI) is sixth in the world when
measured in nominal terms and already second when adjusted to reflect
purchasing-power parity standards. If China can sustain its current economic
growth rates, the Organization for Economic Cooperation and Development
(OECD) predicts that Chinas gross domestic product may account for one fifth
of the worlds total in 2020, surpassing the US (11%) and Japan (5%).
Unlike Japan, whose free trade efforts have thus far been limited to the signing of
a free trade agreement with Singapore (the so-called Japan-Singapore Economic
Agreement for a New Partnership) China has committed itself to the
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liberalisation of a number of agricultural products when implementing FTAs with
ASEAN countries. This concession is of particular interest to countries such as
Vietnam and Thailand, the biggest exporters of agricultural products in Southeast
Asia. Japan continues to insist on excluding agricultural products from the free
trade agreement, and its agricultural sector is too heavily subsidized (and the
countrys farming lobby too strong) to enable Tokyo to implement free trade
agreements with rice-producing countries, such as Vietnam and Thailand.
Despite Chinas recent free trade initiatives, however, the country is still
perceived above all as an engine for economic growth but not necessarily for
economic integration. Like other developing countries in Asia, China will be
mainly concerned with the development of its own economy and it is not yet fully
clear whether Chinas economic multilateralism will prevail over Beijings
bilateral instincts and strategies with regard to trade. Regardless of perceived
uncertainties with regard to Chinas economic strategies in Asia, policymakers
across the region advocate engaging China economically and politically. China,
the argument goes, is already too important economically and politically to be
excluded from regional integration processes. An engaged China, it is argued,
will ensure political stability in Asia, will help to avoid rivalry with Japan and
will create economic benefits both for itself and its economic partners in Asia.
Asian governments, including China, will continue to favour bilateral over
multilateral co-operation and agreements. The positive side of pursuing such
arrangements, however, is obvious in the Asian context: bilateral agreements can
work on a trial-and-error basis, leaving scope for improvement in successive
agreements.
Although China is still a receiver of Japanese Overseas Development Aid (ODA)
worth 1 billion US per year, Beijing could (given that the countrys economy
continues to grow at current growth rates) over the long-term take over Japans
role as generous donor of economic and financial assistance to developing
economies in Asia.
Apart from the project to implement a free trade agreement with ASEAN by the
year 2010, China has signed a number of bilateral economic agreements with
Southeast Asian nations over the last few years, underlining Beijings ambitions
to strengthen its role as the dominant economic power in the region. However,
Chinas ambitions to become the engine of regional economic and political
integration will, amongst others, be measured against the outcome of Chinas
initiative to establish a China-ASEAN free trade agreement by 2010.
China, as many analysts maintain, still prefers to deal with its neighbours
bilaterally and is committed to conditional multilateralism. This concept
effectively means a multilateralism that suits Chinese interests and that does not
jeopardise Beijings ability to apply rules of inter-state relations flexibly.
Scholars and analysts critical of Chinas role in the Asian integration process
argue that Beijing should not be assigned a leadership role due to the lack of
democratic political structures in the country. Japanese policy makers in
particular maintain that a non-democratic country can neither lead Asias political
integration nor further democratisation in Asia. Instead democratic Japan and
South Korea should lead political integration in Asia. This is in line with the
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European assumption that democratic structures are the precondition for a
meaningful integration process. However, meaningful discussions in Europe and
Asia on Chinas democratisation and the lack of democratic structures have
become sidelined as news on Chinas economic growth and growing political and
economic influence dominate the headlines and debates. The virtual absence of
critical assessments from Southeast Asian governments on the issue of Chinas
lack of democratic structures once again confirms the impression that political
integration in Asia is secondary for many Asian governments.
8. Regional Integration and Japans Economic Crisis
Over the last decade, economic integration in Asia has been hindered by the
sluggish growth of the Japanese economy. The Japanese economic crisis led to
decreased Japanese investments in the region as well as to significant cuts of
Japanese Overseas Development Assistance to Asian nations. Despite the fact
that Japan is still by far the largest economic power in the region, the countrys
decade-long economic crisis has led many Asian governments to fear that Japans
ability to foster regional economic integration will remain very limited in the
years to come.
A full and sustainable recovery of the Japanese economy is imperative to
achieving further regional economic integration as Japan is still by far the largest
investor in East and Southeast Asia.
Until a decade ago, Japan was the engine of regional economic growth and
integration. Aside from the economic crisis, the countrys recession and its slow
economic growth rates have turned the country into the sick man of Asia,
suffering from economic stagnation and unable to promote and implement
economic integration initiatives in the region. Currently, Japan is focusing on the
full recovery of its economy and a return to sustainable economic growth rates.
Japans current seemingly stable economic recovery (dating back to the end of
2002 and mainly sustained and supported by growing exports to China and the
US) give reason to believe that it is on the path towards recovery and growth,
despite the fact that the governments estimated economic growth rates turned out
to be overly optimistic at the end of 2004. The expensive yen, as well as slowing
exports to China and the US, however, will put Japans economic recovery
efforts to the test in 2005. Analysts and economists agree that Japan will need
more than just a few years of solid economic growth rates to leave economic
stagnation and recession behind. Economists estimate that Japans economy
would need to display steady growth for at least a decade (apart from the
necessity to further structural and economic reforms) in order to overcome the
negative effects of the economic crisis and the burst of the economys bubble at
the beginning of the 1990s.
Chinas recent initiative to implement a free trade agreement with ASEAN by
2010, however, served as a wake-up call for Japans policymakers urging them to
consider free trade agreements with a number of ASEAN nations as well as with
Mexico. However, Japans powerful farming lobby will remain the principal
obstacle to free trade agreements with countries from Southeast Asia. Due to
Japans refusal to include agricultural products in any free trade agreements, any
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such agreements between Japan and Southeast Asian nations (with the exception
of Singapore) will remain off the agenda, at least for the time being.
9. Regional Integration-Japans Goals and Motivations
Despite numerous Japanese promises to return to Asia, Tokyos business,
political and security relations still focus on the US. Among Japans neighbours
in Asia (with the exception of South Korea which maintains an equally close
military alliance with the US), its close alliance with the US is perceived as an
obstacle to further integration. Japans dependence on US foreign and security
policies, manifested by the U.S.-Japan security alliance, is perceived to be the
main reason why Japan will not be able to fully use its full economic and political
influence to foster economic and political integration in the future beyond the
current level. Strong US pressure on Japan to favour its bilateral ties with
Washington over multilateral agreements in Asia will ensure that Japan will not
change its strategy any time soon.
Despite afresh cuts in Japans ODA (for the sixth consecutive year), Japan is still
by far the biggest donor in Asia and will continue to use economic and financial
assistance as tools to implement its policies in Asia and beyond.
Although Japan has, in recent years, developed and implemented more assertive
(and at times controversial) regional and global foreign and security policies, the
countrys so-called foreign economic policy (Jap. keizai gaik) of pursuing its
interests through economic and financial assistance as well as development aid
will remain its most effective and important policy tool.
Analysts maintain that Japans plans to cut foreign aid in 2005 will send the
wrong signal to Asian nations, confirming Asian governments in their suspicion
that Japans interests in fostering further Asian economic integration is limited.
Already in the past, Japans policymakers were confronted with criticism that
Japanese ODA to Asian countries is subject to numerous conditions serving,
above all, to secure favourable market access for Japanese goods and products.
However, Japan is not, of course, the only country linking the provision of ODA
to conditions and despite the recent cuts in ODA, Japan will remain the biggest
donor to Asian countries for many years to come.
While Japans Ministry of Foreign Affairs protested against the recent cuts in
Japanese ODA, arguing that the cuts will harm Japans foreign policy goals, the
Japanese Ministry of Finance, on the other hand, maintains that fiscal restraints
have made the cuts necessary. Japans global ODA will drop by 3.8% in 2005,
which will effect China, the biggest recipient of Japanese ODA. Currently,
Chinas economy is receiving Japanese ODA worth one billion US dollars per
year, an amount too high for those in Japan who claim that China is misusing
Japanese ODA to upgrade its military. Chinas fast growing defence budget
(Chinas defence budget saw a yearly two-digit percentage growth rate over the
last 15 years) and the rapid modernisation of Chinas armed forces, should,
Japanese conservatives and ultraconservatives argue, be a reason to significantly
cut ODA to China.

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10. Japan - Able and Willing to Integrate?
The Japanese governments bureaucracy is hardly unified with regard to the
perceived benefits and burdens of regional integration. The Ministry of Foreign
Affairs, concerned with Japans regional and global image, is, at least on paper,
strongly committed to regional integration. Promoting Japans soft power by
implementing regional and global policies through humanitarian aid and
economic assistance is still the ministrys main concern despite Japanese Prime
Minister Yunichiro Koizumis rhetoric on a more assertive Japanese foreign
and security policy. The Ministry of Foreign Affairs advocates a leading role for
Japan in regional integration although the Ministry is also concerned about
providing a militarily growing China with Japanese ODA.
Judging by the governments rhetoric, regional integration is a policy priority.
However, there are a number scholars and economists who argue that economic
integration in Asia is far less important to Japan than the Prime Minister is
making out. Regional economic integration, the argument goes, is not a real
priority but rather a passing opportunity for Japan for whom bilateral trade
relations with the US and China are of paramount concern. Indeed, as recent
months have shown, exports to China and US are vital to achieving sustainable
economic recovery in Japan in 2005 and beyond. Slowing exports to China and
the US have already led to a downward revision of Japans economic growth
rates for the year 2005.
Commentators critical of Japans efforts to take an active or leading role in
regional integration also argue that Japans integration efforts are used to
distract from Japans domestic economic crisis. Japans efforts to foster trade
and monetary integration in Asia, it is argued, is little more than an attempt by
Japans policymakers to make up for the countrys loss of international standing
caused by its decade-long economic recession.
Unlike the leading European economies, Japan, it is argued, is neither prepared to
bear the adjustment costs of integration nor to replace protectionist strategies with
the opening of Japanese markets in all sectors (this is the main reason why
implementing free trade agreements with Japan is still very problematic or in the
case of free trade agreements between Japan and Southeast Asian nations, next to
impossible).
Those in Japan who favour further economic integration and the opening of
Japanese markets are confronted with powerful domestic lobbies in Japan
opposed to further economic integration. Import-competing and non-traded
businesses are the main interests group opposing economic integration. Their
main goal is the maintenance of Japanese protectionism making it still extremely
difficult to enter the Japanese market in many sectors, above all the agriculture
sector.
Such Japanese-style protectionism has extremely negative implications for its
overall trade policies, given that sectors such as agriculture, forestry and fishery
comprise only a very small fraction of Japans economy.

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Despite resistance within Japan to further economic integration in Asia, the
countrys policymakers do acknowledge the potential benefits of economic
integration. Bilateral free trade agreements, closer monetary co-operation along
the lines of the Chiang Mai initiative and intensified FDI flows will all be
beneficial to the Japanese economy and trade relations even if the short-term
adjustment costs are high. Japan is very likely to gain from intensified FDI flows
as the country will stand to gain significantly from continuing to shift production
abroad (above all to China).
Over the coming years, Japans policymakers are faced with the challenge of
convincing business and opposing lobbies of the long-term benefits of Asian
economic integration. In this context, the countrys policymakers are faced with
the task of explaining to its business leaders and the public that shifting
production abroad will not, as nationalist and ultraconservatives forces in Japan
claim, lead to the hollowing out of Japanese industry.
11. Regional Integration and the Role of Chinese-Japanese Relations
Stable Chinese-Japanese relations are key to further regional integration in Asia.
China and Japan are the regions biggest economies and regional economic
integration will also depend on both countries willingness to overcome the
historical legacy of World War II.
Unlike China and Japan in Asia, France and Germany in Europe have addressed
and solved the problems of the past. Germany made enormous efforts to achieve
reconciliation with France after centuries of rivalries and wars. China and Japan
are, at least for the foreseeable future, very unlikely to become the France and
Germany of Asia fostering economic and political integration. Although China
and Japan will continue to solve bilateral problems peacefully, economic
competition and rivalry between the two countries is likely to continue. In the
recent past, China and Japan experienced bilateral trade frictions over the import
of Chinese farm products to Japan. Back in 2001, Japan referred to WTO
safeguard clauses causing China to impose retaliatory tariffs on Japanese exports.
Avoiding further tensions, however, is of interest to both countries and in order to
sustain its current economic growth rates, China needs to continue to attract
Japanese capital and technology. Japan, on the other hand, will need to continue
to take advantage of Chinas rapidly growing market and its supply of low-wage
workers.
Recent Japanese-Sino tensions and trade frictions give little reason for optimism
that Japan and China are on the path towards stable and lasting reconciliation.
Japan and China will not, at least not for the foreseeable future, be seen to be
jointly promoting economic and political integration in Asia.
12. Regional Integration and the Role of Free Trade Agreements (FTAs)
Conventional economic theories suggest that regional economic integration can
only succeed after certain economic preconditions have been met, including:
intense trade relations, complementarity of specialisation and common rules of
trade. Asia seems to meet two out of the three of these preconditions and Asian

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free trade agreements are very likely to ensure that Asian nations will also
develop and implement common rules of trade in the not so distant future.
When implemented in Asia, free trade agreements will be encouraging the
complementarity between developed and less developed countries. Furthermore,
free trade agreements will create incentives and opportunities to reform domestic
institutions. This seems to be of particular importance for Asian financial
institutions looking to avoid another 1997/1998-style financial crisis. The domino
effect of that crisis revealed the high degree of interdependence and
interconnectivity between Asian economies. Free trade agreements will
eventually eliminate tariffs and will require the implementation of common trade
rules to ensure fair competition. China in particular, as the regions economic
powerhouse, will benefit from common trade rules and transparency.
Economic integration in Asia will be measured by the level of success in fully
implementing the ASEAN Free Trade Area (AFTA). However, the 2010 deadline
to fully implement AFTA and eliminate all existing tariffs and trade barriers
amongst its Member States seems unrealistic. Since the beginning of 2004 Brunei,
Indonesia, Malaysia, the Philippines, Singapore and Thailand have reduced their
tariffs on each others goods to a maximum of 5%, but analysts widely agree that
these tariffs cannot be reduced to zero any time soon. Since the 1990s, more than
40 bilateral free trade agreements have been introduced within and beyond Asia
and the trend of favouring bilateral over multilateral agreements is very likely to
prevail.
Trade amongst China, Japan and South Korea has grown impressively over the
last decade. While in 1990 the portion of their total trade was in the region of
10%, it is now more than 20%. According to the Korean Institute for Economic
Policy, a Chinese-Japanese-Korean free trade agreement would boost Chinas
gross domestic product (GDP) by 1.3%, South Koreas by 3.2% and Japans by
0.2% (translating into an increase of $820 million for China, $12.7 billion for
South Korea and $12.3 billion for Japan).
13. Obstacles to Asian Integration
Many Asian scholars and politicians argue that Asia is too culturally diverse to
achieve an EU level of political and economic integration. Asia, the argument
goes, is too heterogeneous in terms of size, economic development, level of
democracy and standard of living to achieve EU-style integration. Europeans, on
the other hand, counter that this cultural heterogeneity argument is merely
used as an excuse not to integrate beyond the current level. Cultural differences
in Europe, European scholars point out, have not hindered the EU integration
process.
The significant gap in GDP per capita amongst Asian countries will remain an
obstacle to further economic integration. Whereas Singapores GDP per capita
amounts to roughly $21.000, Vietnams GDP per capita amounts to only $500.
Economic integration in light of (very) different levels of economic development
in Asia requires a sophisticated co-ordination process and a common
understanding of the priorities of integration. Such co-ordination processes,
however, are still underdeveloped, as economic development and not economic
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or political integration will remain the priority for Asias poorer countries for the
foreseeable future. However, economic development will inevitably lead to
further economic integration, as recent Asian free trade agreements have shown.
Many Asian scholars point out that nations in Asia, above all the former British
colonies in Southeast Asia (e.g. Malaysia and Brunei) will, at least for the time
being, remain reluctant to pursue further political integration going along with the
concept of EU-style sharing of sovereignty in key policy areas. Asian nations, the
argument goes, are neither willing to give up some of their (in some cases)
recently gained independence and will therefore limit themselves to promoting
economic integration.
A number of authors argue that it is the nature of British, French, Dutch and US
colonialism in Southeast Asia which still hinders Asian economic and political
integration. Southeast Asians nations, Peter Katzenstein wrote in the mid-1990s,
are heirs to colonial powers and have inherited the colonial tradition of the rule
by law rather than the West European tradition of the rule of law. The relation
between state and society is governed by social rather than legal norms.
Following this argument, colonialism has indeed kept former colonies to establish
democratic structures (after the era of colonialism in Southeast Asia) as the
precondition for meaningful and codified Asian regional integration.
14. Conclusion
EU-style integration cannot serve as a role model for Asia and Asian integration
and there is no agreement on who should lead the Asian integration processes
either within ASEAN or in East Asia, or South Asia. Asian integration will, at
least for the time being, remain mainly limited to economic integration through
the establishment of free trade agreements. Whereas political integration in Asia
will remain very limited, recent economic integration initiatives through bilateral
and multilateral free trade agreements demonstrate that Asian governments are
acknowledging the mutual benefits of economic integration and interdependence.
Asian integration and multilateral co-operation in the field of security will also
remain very limited, although it is hoped that the ASEAN Regional Forum (ARF)
will gain influence and clout in shaping regional security. Despite its
shortcomings, the ARF has been successful in bringing China into a regional
security dialogue, even if the ASEAN principle of non-interference in internal
affairs will continue to keep the forum from implementing legally-binding
decisions in the field of regional security. With its growing economic weight and
political influence, China is expected to take a leading role in the ARF and its
recent initiative to include Defence Ministers in its meetings is an indication that
China is willing to discuss regional security issues on a multilateral basis. As for
further political integration in Asia, the above mentioned principle of noninterference in international affairs of other nations will continue to hinder the
kind of integration that requires real sovereignty-sharing.

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Notes
Almonte, Jose T., Ensuring Security the ASEAN Way; in: Survival, Vol.39,
No.4, Winter 1997; The International Institute for Strategic Studies (IISS),
London.
Anthony, Mely C., Regionalisation of Peace in Asia: Experiences and Prospects
of ASEN, ARF and UN Partnership; Institute of Defence and Strategic Studies
Singapore (IDSS), January 2003.
Berkofsky, Axel, Koizumis ASEAN Tour-Vagueness Prevails; RUSI
Newsbrief Feb. 2002, The Royal United Services Institute for Defence Studies
London, 2002.
Cronin, Bruce, Community Under Anarchy: Transnational Identity and the
Evolution of International Cooperation; Columbia Press New York, 1999.
Deng, Yong, Promoting Asia-Pacific Economic Cooperation: Perspectives from
East Asia; Routledge, London, 1997.
Desker, Barry, The Future of the ASEAN Regional Forum; PacNet Newsletter
No.36 September 7, 2001; http://www.csis.org/pacfor/pac0136.htm
Frankel, Jeffrey A., Kahler, Miles (ed), Regionalism and Rivalry: Japan and the
United States in Pacific Asia; Chicago University Press Chicago 1993.
Frederick, Jim, Back to Reality; in: Time Asia, December 20, 2004.
Godement, Franois, The Downsizing of Asia; Routledge London, 1999.
Hanson, Richard, Falling numbers in land of rising sun; in: The Asia Times
Online Sept. 21, 2004.
Harding, H., International Order and Organization in the Asia-Pacific, in: Ross,
Robert (Hg.), East Asia in Transition; M.E. Sharpe New York, 1995.
Hook, Glenn D., Bilateralism and Regionalism in Japans Foreign and Security
Policies, in: Edstrm, Bert, (ed.), Foreign and Security Policies in Transition;
The Swedish Institute of International Affairs Stockholm, 1996.
Hook, Glenn D., The Japanese Role in the Emerging Asia-Pacific Order, in:
Legewie, Jochen, Blechinger, Verena (ed.), Facing Asia-Japans Role in the
Political and Economic Dynamism of Regional Cooperation; Monographien aus
dem Deutschen Institut fr Japanstudien (DIJ) Tokio Band 24, 2000.
Ibson, David, Head of Japan business group sides with China; in: The Financial
Times November 25, 2004.

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Ikenberry, John G., Tsuchiyama Jitsu, Between Balance of Power and
Community: The Future of Multilateral Security Cooperation in the AsiaPacific. in: International Relations of the Asia-Pacific Vol.2, Number 1, 2002.
Itoh, Mayumi, Japan-Southeast Asia Relations: Perception Gaps, Legacy of
World War II, and Economic Policy, Paper presented at the 1995 Asian Studies
on the Pacific Coast (ASPAC) Conference Pacific University, June 1995.
Jonquieres, Guy de, Japan Must Break with its Past to Prosper again in: The
Financial Times, December 21, 2004
Jopson, Barney, Japan Hit by Falling Output and Rise in Jobless in: The
Financial Times, November 30 2004
Jopson, Barney, Market Insight: Japans Economy Shifts into Neutral in: The
Financial Times, December 15, 2004.
Jopson, Barney, Data Add to Japan Recovery Doubts in: The Financial Times ,
August 31 2004
Jopson, Barney, Growth in Japans Trade Surplus Slows in: The Financial
Times Nov. 25 2004
Katzenstein, Peter J., Regionalism in Comparative Perspective; Arena Working
Papers WP 96/1; www.arena.uio.no/publications/wp96_1.html
Krause, J., Umbach F. (ed.), Perspectives of Regional Security Cooperation in
Asia-Pacific: Learning from Europe of Developing Indigenous Models?; Europa
Union Verlag Bonn, 1998.
Madsen, Robert, Japan is Casting off the Burden of Excess Saving in: The
Financial Times September 27, 2004
Mahbubani, Kishore, The Pacific Way; in: Foreign Affairs 71,1 Jan./Feb. 1995
McCurry, Justin, Japan Plans to Cut Foreign Aid Budget for Sixth Year in: The
Guardian Dec. 21 2004
Mller, Kay, Diplomatic Relations and Mutual Strategic Perceptions: China and
the European Union in Edmonds, R.L. (ed.), China and Europe since 1978: A
European Perspective; Cambridge University Press, Cambridge 2002
Munakata, Naoko, The Challenge of East Asia Economic Integration in: The
New Nation April 20, 2004
Naidu, G.V.C., Multilateralism and Regional Security: Can the ASEAN
Regional Forum Really Make a Difference? in: Asia Pacific Issues, Analysis
from the East-West Center No.45, Aug. 2000; East-West Center Honolulu,
Hawaii.

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Ogura Kazuo, A Call for a New Concept of Asia in: Japan Echo 20, 3 Autumn
1993
Ong, Chuan Eng, Anchor East Asian Free Trade in ASEAN; in: The Washington
Quarterly 26:2 Spring 2003, S.57-72,
http://www.thewashingtonquarterly.com/03spring/docs/03spring_ong.pdf
Pilling, David, China Provides Boost for Tokyo Growth Revival in: The
Financial Times October 12, 2004.
Posen, Adam S., Japans Distraction by Regional Economic Integration,
Speech prepared for presentation at the State Department INR Roundtable on
Northeast Asian Regional Economic Integration, Washington DC June 21, 2002.
Posen, Adam S., Finance; in: Vogel, Stephen K., U.S.-Japan Relations in a
Changing World; Brookings Institution Press, 2002.
Ravenhill, John, The Growth of Intergovernmental Collaboration in the AsiaPacific Region in: Mc Grew, Anthony, Brook, Christopher, Asia-Pacific in the
New World Order; Routledge, London 1998, p.247-270.
Roach, Stephen, Global: Asias Recovery Void; Morgan Stanley Global
Economic Forum May 26, 2004.
Stubbs, Richard, Signing on to Liberalization: AFTA and the Politics of Regional
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Taniguchi Makoto, Time for an East Asian Economic Zone, in: Japan Echo Jan.
December 2003.
Thayer, Carlyle A., China Consolidates Its Long-Term Bilateral Relations with
Southeast Asia in: Pacific Forum CSIS- Comparative Connections-An E-Journal
on East Asian Bilateral Relations, 2nd Charter 2000;
http://www.csis.org/pacfor/cc/002Qchina_asean.html
Whiting, Allen S., ASEAN Eyes China in: Asian Survey Vol.37, No.4 (Apr.
1997)
Wu Xinbo, The Security Dimension of Sino-Japanese Relations in: Asian
Survey Vol. XL, No.2, March/Apr. 2000
Zaun, Todd, Recovery in Japans Economy is Slowing in: The International
Herald Tribune August 27, 2004.

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Annex
EUROPEAN INTEGRATION-KEY DATES AND EVENTS
DATE
May 9, 1950
April 18, 1951
March 25, 1957
April 8, 1965
July 1, 1968
January 1, 1973
March 13, 1979
January 1, 1981
June 29, 1985
January 1, 1986
July 1, 1987
June 26-27, 1989
October 3, 1990
October 21, 1991
December 11, 1991
December 16, 1991
January 1, 1993
November 1, 1993
January 1, 1995
June 17, 1997
March 12, 1998

March 30-31, 1998


May 2, 1998
June 1, 1998
January 1, 1999
May 1, 1999
December 1999

EVENT
Robert Schuman proposes pooling Europe's coal and
steel industries.
European Coal and Steel Community (ECSC) Treaty
signed in Paris.
European Economic Community (EEC) and European
Atomic Energy Community (EURATOM) Treaties
signed in Rome.
Treaty merging the institutions of the three European
Communities signed.
Customs union completed
Denmark, Ireland, and the United Kingdom join the
Community.
European Monetary System (EMS) becomes
operational.
Greece joins the European Community.
European Council endorses "White Paper" plan to
complete single market by end 1992.
Spain and Portugal join the Community.
Single European Act (SEA) enters into force.
Madrid European Council endorses plan for Economic
and Monetary Union (EMU).
The five federal states of the former German
Democratic Republic enter the
Community as part of a united Germany.
European Community and European Free Trade
Association (EFTA)
agree to form the European Economic Area (EEA).
Maastricht European Council agrees on Treaty on
European Union.
Poland, Hungary, and Czechoslovakia sign first
Europe Agreements on trade and political
cooperation.
Establishment of European Single Market
Treaty on European Union (Maastricht Treaty) enters
into force
Austria, Finland, and Sweden join the European
Union.
Treaty of Amsterdam is concluded.
European conference in London launches Europe-wide
consultations on issues related to Common Foreign
and Security Policy (CFSP) and Justice and Home
Affairs (JHA).
EU opens membership negotiations with Cyprus,
Czech Republic, Estonia, Hungary, Poland, and
Slovenia.
Eleven EU member states qualify to launch the euro on
January 1, 1999.
European Central Bank (ECB) inaugurated in
Frankfurt, Germany.
EMU and euro launched in eleven EU countries.
Treaty of Amsterdam enters into force.
European Council meeting in Helsinki decides to open
accession negotiations with Bulgaria, Latvia,
Lithuania, Malta, Romania, and the Slovak Republic
and to recognize Turkey as a candidate country.

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December 2000
February 26, 2001
January February 2002
December 12 13, 2002

February 1, 2003
April 16, 2003
May 1, 2004

European Council agrees on Treaty of Nice. EU


leaders formally proclaim the Charter of Fundamental
Rights of the European Union.
Regulation adopted establishing the Rapid Reaction
Force.
The Euro becomes legal tender and permanently
replaces national currencies in EMU countries.
The European Council announces that Cyprus, Czech
Republic, Estonia, Hungary, Latvia, Lithuania, Malta,
Poland, Slovak Republic, and Slovenia will become
EU members by May 1, 2004.
The Treaty of Nice enters into force.
Treaty of Accession (2003) is signed in Athens,
Greece.
Cyprus, Czech Republic, Estonia, Hungary, Latvia,
Lithuania, Malta, Poland, Slovak Republic, and
Slovenia become EU Member States.

Source: European Union Delegation of the European Commission to the United States
http://www.eurunion.org/infores/euguide/milestones.htm

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